Best Factoring Companies for 2024

Choosing the right factoring company is crucial to ensure a successful partnership. The most important considerations are the factoring company’s industry expertise, contract terms and customer service.

Industry expertise

Choose a factoring company that has expertise in your industry. Although the accounts receivable financing process is fairly standard, there are some niche industries that require expertise.

Niche industries include:

• Construction
• Government
• Healthcare
• Trucking

If your business operates in one of these industries, then finding a factoring company that has experience in your industry is vitally important.

Contract terms

All factoring companies have contract terms regarding contract length, termination fees or cancellation fees. Long-term contracts requiring six months or longer should be thoughtfully evaluated. Conflicts can arise over a number of issues and cancellation notices often go unnoticed. These situations create an undesirable long-term relationship or result in hefty cancellation fees.

Most of FactoringClub’s top factoring companies offer “month-to-month” or “no-term” contracts, with quick and easy cancellation notices.

Non-recourse factoring

Opting for non-recourse factoring can be an effective strategy to mitigate credit risks associated with customer credit issues. However, most non-recourse agreements only cover customer credit situations such as insolvency or bankruptcy. You’re still on the hook for customer disputes, irregularities and fraud. Non-recourse factoring is generally more restrictive, meaning you may find it difficult to factor all your invoices if your factoring company deems your customer credit is insufficient.

Minimum volume fees

Some factoring companies charge a fee if you don’t factor a minimum invoice volume each month. This is especially common if you negotiated a low factoring rate based on an expected volume. You should carefully consider monthly minimum fees, especially if your sales are seasonal or sporadic.

Advance rates

The advance rate in invoice factoring varies across different industries, primarily due to the degree of risk associated with the industry. Advance rates are typically in the 80 to 90% range. Freight factoring companies offer higher advance rates, often 95% to 100% (referred to as fully-funded).

Factoring Fees

Factoring fees or factoring rates can range anywhere between 1 to 5% of the invoice value. The variation in rates depends on the following criteria:

1. Funding amount: Higher monthly funding receive lower rates.
2. Customer creditworthiness: High creditworthy customers pose less risk and usually receive lower rates.
3. Transaction risk: More complex and risky transactions require higher rates.
4. Days outstanding: Factoring costs generally increase as your invoices take longer to collect.

Factoring companies determine factoring costs in either of two ways.

Adjustable or time-based rates: The factoring company calculates factoring costs on an outstanding days basis (e.g. monthly, weekly or even daily basis). For instance, if your accounts receivables are outstanding 45 days, then the rate may be calculated as one 30-day rate plus two weekly rates, and possibly a one-day rate.

Flat fee or flat rate: The factoring company charges a set rate (called a flat-rate), so that no matter the number of collection days outstanding, the factoring cost is simply the flat-rate times the invoice amount.

Often, factoring companies use a combination of the two methods – flat rates plus a time-based interest rate.

Customer service

Accounts receivable factoring is a service as much as it is a financing tool, so good customer service is a must. Consider the following:

1. Is the sales person interested in me, as well as my business?
2. Can the sales person answer my questions knowledgeably and clearly?
3. Do I get a designated account manager to handle my account?

When in doubt, consult an industry broker or expert such as FactoringClub.